I know enough to know that when someone starts a sentence with the words "In all due respect ..." there's no great love coming forward. You know the tone. The same one that's used right before you hear something like "in my humble opinion." When I hear either of those sets of words, my first response is "F**k you, will all due respect." Sometimes, I may instead say "In my humble opinion, you can go and F**k yourself." Then I stop listening to whatever it is that's about to be uttered, but I amuse myself with an internal giggle at their expense.
Many years ago, when I was first getting started in life and the greater world of investments, I was very fortunate to have received a cold call from a young man named Bob Shapiro. To make a long story short, Bob was just starting out with E.F. Hutton, of E.F. Hutton fame and became my stock broker for the next 25 years.
How often have you known a cold call to work out?
I followed him to Smith Barney and then to UBS (UBS) and to all of the corporate in-betweens and iterations after E.F. Hutton gave up its soul and life. Sadly, Bob passed away about 5 years ago.
Although I told him that I had, I never did read any of the writings of Bernard Baruch. Bob had recommended that I do so.
I'm not terribly well read. In fact, I'm quite shallow. In the realm of investing, I have read and greatly enjoyed Jim Cramer's "Confessions of a Street Addict." However, by the same token I put "Mad Money" down after 91 pages. In fact, if you had read my book, you would know that even I probably didn't read it and used an outsourced editor, to boot. So, I certainly don't read the writings of a long dead legendary investor, whose mere mention of his name causes phlegm filled sputum to be hurled outward.
It's bad enough that there's an entire summer's worth of swatted flies on my computer monitor, I don't need any Baruch related detritus.
I'll never know whether Baruch had the same penchant for run-on sentences as I seem to have.
Anyway, Bob was a fan and being a man of structure and integrity, he ascribed to at least one of Baruch's investing principles. That was to cut your losses once you've reached the 10% mark. Bob practiced what he preached. He was consistent in his application of the rules and he was a good shepherd of my portfolio, using his discretion to trade. Sometimes performance disappointed, but Bob never did.
In the intervening years, I still haven't read Baruch's works, but I've adopted Bob's belief in rules. The only thing is that I don't buy into Baruch's "10% Rule." For starters, I hate to take a loss, unless its being done for tax purposes.
Sometimes, though, I'll admit that I used "taxes" as an excuse to just get rid of a loser or what I think to be "dead money." Invariably, those have been technology stocks. Other than Google (GOOG), VMWare (VMW), Riverbed Technology (RVBD), Apple (AAPL) and Microsoft (MSFT), I've not had good luck with technology.
Actually, when I lay it out like that, the technology winners outnumber the losers. Dell (DELL), Hewlett-Packard (HPQ), Yahoo! (YHOO) and Research in Motion (RIMM) are my losers, but I hold grudges for a long time and human nature makes it easier to remember the dregs.
Part of the reason that I hate to take losses is that during my years with Bob, I saw many stocks recover from that 10% drop and often quite quickly. Beyond that, there were certainly many holdings that might have had paper losses approaching 10%, yet went on to recover and profit. Rio Tinto (RIO), a holding that I've had since 1994 was one such example.
In the meantime, though, I've had plenty of stocks that have had losses in excess of 10% but I've nursed them back to health. I'm no student of history, but perhaps other than some days in 1929, volatility didn't exist in Baruch's era. Perhaps the time frames were very different. With the kind of volatility that we've seen, it's not unusual to see day by day whipsaw kind of movements that may have taken weeks to play out in Baruch's days. I would certainly be of a different state of mind if I suspected that there was little chance for a stock's price to recover for several months, as opposed to a week.
Riverbed Technology is one example of the great bounces that occur on a regular basis, but there are countless others. Unless a company is irreparably broken there is always a rebound, which in turn is invariably followed by another drop.
Remember the Gulf Oil Spill? I owned shares of British Petroleum (BP), Halliburton (HAL) and Transocean (RIG) and I now refer to them as my Evil Troika, yet I kept them in my portfolio after the terrible events of April 20, 2010. Following the Baruch Rule would have been disastrous.
Instead, see how they all out-performed the S&P 500 once the well was capped and the companies were no longer perceived as "broken."
Of course, in the year since the time period of the graph above, there have been numerous more ups and downs and an equally numerous number of opportunities to monetize the variability is share price.
Although I see shares move in and out of my account on a regular basis due to assignment of calls that I had written, the Evil Troika consistently makes it back into the portfolio and always at prices lower than they had been assigned. Given the fact that my short term memory is fading, the fact that I can recall that they do return to my portfolio is an indication that not too much time elapses between periods of ownership. Most often, it is measured in a one to two week time frame.
Buy low, sell slightly higher. In the meantime, collect an option premium and maybe a dividend, too. Then buy back even lower. Repeat as necessary.
I wonder what Bernard would say about that?
In the past 6 weeks I've been up to New York twice to attend funerals and have had a chance to reflect a bit on the lives and memories of friends and family. I also think about Bob fairly often, despite the fact that we only met a single time.
Strangely, I also end up thinking about Bernard Baruch, a man I'd never met and it's very unlikely that I ever will. I doubt that he believed in reincarnation and I'm not certain that he and I will end up in the same place when it's my time.
Thinking about what a different investing world it has become, with immediate access to information, bid-ask differences of a penny and significantly reduced transaction costs, I wonder what Bernard Baruch would teach us today?
In all likelihood, he would be going by the name "Barry Barch" and would be pushing whatever the intangible asset of the day happened to be.
In all likelihood, he'd be recommending sales of options on the VIX futures (VXX), which themselves are a measure of the implied neurotic tendencies of investors who are uncertain of what to do in the face of earning's season reports.
Bob, on the other hand, would probably not follow him in that direction.
In my humble opinion